Shall we avoid risks? I don't agree so. We should understand risks, recognize risks and control risks.

Risk control is the best route to loss avoidance. Risk avoidance, on the other hand, is likely to lead to return avoidance as well.

It is by taking risks toward which others are averse in the extreme-that we strive to add value to our investment.

But we must understand, recognize and properly control risks to have positive outcomes. Without these, we could end up in troubles.

Merry Chritmas and happy new year.

Oh ladzatz, forgot to tell you that this guy asked you not to buy Kfima. You got to ask him to explain to you why is Kfima is expensive at 1.92. He is a maths wizard.

Posted by anbz > Dec 26, 2013 01:22 AM | Report Abuse

don't buy kfima...it's too expensive...look...another stock recommended

by kcchong...is pmcorp...only 21.5 cents...ask him why he recommends

lousy counters such as pmcorp..hahaha

Posted by ladzatz > Dec 27, 2013 05:09 PM | Report Abuse

kcchong...what's the minimum TP for kfima?

What is TP? Target Price? I don't know the target price because it is determined by the actions of the stock market players.

If you are interested in what is the estimated intrinsic value of Kfima, I have done heaps of them and written heaps of them in i3. One of the links is as below:

http://klse.i3investor.com/blogs/stock_pick_challenge_2013_2h/34118.jsp

You got to make your own judgement. Best of luck.

The power of leverage

When I wrote about punting the call warrants of Tenaga just 10 days ago, (See posting here on 17/12/13)Tenaga's share price was RM11.02. It has increased by 5% to RM11.60 at the close of today. Look how much the call warrants have increased in price as shown below.

CW Price now Price 17/12/13 Change
C5 0.51 0.345 48%
C6 0.21 0.195 8%
C7 0.15 0.115 26%
C2 0.79 0.79 0%
C3 1.24 0.97 28%
C4 0.84 0.63 33%

Tenaga 11.60 11.02 5%

Forget about C5 which closed at 51 sen for a 48% gain which I think it is not a normal transaction, and this price won't stay when market opens next week.

C3, C4 and C7 have gone up by 28%, 33%, and 26% respectively. How nice is it to make a return of about 30% in just 10 days.

Posted by JXRepcoBuffet > Dec 27, 2013 04:44 PM | Report Abuse

Hi Mr. kcchongnz, thanks for the sharing. How about Prestariang? is that still your top pick for FY2014?

Prestariang is one of the stocks in my portfolio. It is a pick, but not necessary the top pick for 2014. You can read my analysis and valuation in the appended thread below if you are interested:

http://klse.i3investor.com/blogs/stock_pick_challenge_2013_2h/42400.jsp

The very logical actions of arbitrageurs would make any discount of warrants disappear. Why is this not happening?

Arbitrage opportunity for Hibiscus warrants

Hibiscus share is trading at 1.74 while its warrant is trading at 1.16 right now. There is a discount on the warrants, a free lunch?

If I have 100000 shares of Hibiscus, I will do the following and pocket quite a fair bit of money without any change in my position.

Action No of shares price Amount
Sell Mother share 100000 1.740 174000
Buy Wa 100000 1.16 116000
Add conversion cost 100000 0.50 50000
Total cost xxxxxx xxxx 166000
Pocket xxxxxx xxxx 8000

I am sure there are plenty of smart investors out there. Why aren't they doing this? Are they stupid? I doubt so.

bsngpg, your words fall on deaf ears. Too bad.

But those words of yours are words of wisdom, a must to survive in the jungle out there. The reality of this stock market is; few people are wise enough to listen to words of wisdom. Everybody wants to hear positive words, too much of positive feelings, good karma they say. Little do they know words of caution, skepticism,fear (scared to die)etc are the necessary cognitive behaviour to survive.

高买是另一个亏钱原因. I would say buy high is the most important reason of losing. To me investment risk is buying a security at high price.

However, one must be skillful to determine what is high, because if he can't, he can miss good opportunity to buy and make extra-ordinary return. But I guess it is not as bad as simply buy and risk of losing money.

I know you are moving towards the second-level thinking; how to determine if something is cheap or expensive. Good on you.

Why invest in this kind of stocks?

So that can make money loh. I mean retail "investors" make money for the insiders and syndicates, the Dato2 etc.

Posted by nokenzo > Dec 27, 2013 06:32 AM | Report Abuse

Hi Mr KC, how do you get 33m reduction in receivables in Q1 2014 comparing to 2013 receivables? Do you also include other receivables also as in the AR and quarterly report?

That 33m is shown in the statement of "cash flow from operating activities" in the first quarter 2014 results. It includes all receivables.

Say we have a few construction companies but which is doing a better business? One way to look at them is their return on equity (ROE). It is one of the most important indicators of a firm’s profitability and potential growth. Companies that boast a high ROE with little or no debt are able to grow without large capital expenditures, allowing the owners of the business to withdrawal cash and reinvest it elsewhere. Many investors fail to realize, however, that two companies can have the same ROE, yet one can be a much better business. How do we determine that?

DuPont equation provides a broader picture of ROE of a company. It tells where a company's strength lies and where there is room for improvement. It is the epic of financial statement analysis of a company. Investopedia has a very good explanation on why is it important to carry our DuPont analysis on a company’s business as shown in the link below:

http://www.investopedia.com/articles/fundamental-analysis/08/dupont-analysis.asp

Du Pont Analysis
There are three components in the calculation of ROE using the traditional DuPont model; the net Income margin (NIM), asset turnover (AT), and the equity multiplier(EM). By examining each input individually, we can discover the sources of a company's ROE and compare it to its competitors.

ROE = NI/E = NI/S * S/TA * TA/E = NIM * AT * EM
Where NI is net income, E is equity, S is sales or revenue, TA is total assets

Table 1 below shows the dissection of ROE of some construction companies in Malaysia.

Table 1: ROE of construction companies
Company Kimlun Ptaras HSL Cresbld Gamuda IJM WCT
Net Income margin, NIM 5.5% 30.3% 15.0% 7.0% 14.2% 12.1% 22.5%
Asset turnover, AT 1.22 0.52 0.80 0.61 0.40 0.31 0.29
Equity multiplier, EM 2.66 1.22 1.58 2.92 1.92 2.07 2.85
ROE=NIM*AT*EM 18% 19% 19% 13% 11% 8% 19%
Data based on latest fiscal year results

Four of the companies have approximately the same ROE of 19%, very good as this ROE is above the cost of equity, generally from 10% to 15%, depending on the riskiness of the company, the riskier it is, the higher the required return. These companies are Kimlun, Pintaras, HSL and WCT. Gamuda and IJM have low ROE mainly because they have too much assets, so much so that even though their turnovers are high, in relation to assets, the asset turnover is still low. Crestbuilder’s ROE is just mediocre at 13% even though it uses huge leverage of 2.92, ie borrows a lot of money to operate its business, and hence riskier. This is because its net profit margin is low at only 7%. HSL appears to be in good business as its high ROE of 19% is achieved with reasonable high net income margin of 15%, and reasonable EM of 1.6.

It is not hard to see that Pintaras has the best business with ROE of 19%, achieved with very high net income margin of 30.3%, at a low equity multiplier of just 1.2. This is because Pintaras has no debt at all. Pintaras’s AT is relatively low at 0.5. All it has to do is to grab more jobs and its ROE will improve further.

Value Value Value
There is a difference between a good business and a good investment. A good business is as described above, a good investment is one which will provide you with excess return over a period of time. A good business generally will sell at a higher price but it won’t be a good investment, if the price is too high. One common metric investors use is the price to earnings ratio, PE. The lower the PE, the better the investment, all others remain the same.

Table 2 below shows the market valuations of the construction companies.

Table 2: Market valuation
Company Kimlun Ptaras HSL Cresbld Gamuda IJM WCT
Price 1.84 2.87 1.84 1.48 4.67 5.87 2.15
PE 8.9 8.8 11.8 5.1 19.6 19.3 5.6
TEV/Ebit 8.4 5.6 7.6 7.9 22.9 12.4 7.2


The PE ratio of Crestbuilder and WCT are the lowest at 5.1 and 5.6 respectively. But does it mean that they are better buys, especially for WCT with a high ROE of 19%? Not necessary. This is because WCT has relatively high equity multiplier of 2.9, one of the highest. Not to mentioned that it also have a lot of company warrant holders who would take a piece of the pie from the common shareholders when they convert to common shares.

So a better comparative valuation metric would be the enterprise value, which takes into consideration of debts and excess cash, minority interest if any. Appended below is a link in i3 describing what is enterprise value and what is its significance in valuation.
http://klse.i3investor.com/blogs/kianweiaritcles/37729.jsp
Referring back to Table 2 again, one can see that the best buy is Pintaras with its enterprise value 5.6 times its Ebit, and it also has the best business with one of the highest ROE.

The share price of Hibiscus dropped from the height of RM2.70 to the morning closing today at RM1.52. This is a drop of 44%, yes 44% in just less than a week!

When I invest in long term, I have reasonable expectation of a consistent return of about 12% a year. To get back from RM1.52 to RM2.70, Hibiscus has to have its share price gained by 78%, just to make even. This 78% return requires 5 years time, each year at 12% return, to do that.

The hope of oil oozing out from the well was dashed with the report out at midnight on the Christmas Eve. Yes, it was based on hope. But it actually could have ended up the other way, that oil oozes out in abundant and the share price shoots to RM10 a share.

However, I don't want to put my money in something for retirement just based on hope.

This will be my guiding principle in selection for stocks to invest in 2014.

SEPHIROTH,
MK Land does seem to improve in its operations. A lemon in the past may not be a lemon in the future. For one, if the price has fallen to way below its intrinsic value, or its intrinsic value risen way above its depressed price, it is not classified as a lemon any more.

Anyway, the list is term "some stocks in Bursa", nothing mentioned about "lemon".

Posted by anbz > Dec 26, 2013 12:48 AM | Report Abuse
and u know what? kcchong never commented about that...and he has the guts to belittle pw corp historical price....he never talks about...pmcorp historical price that has reached 8 cents ...bias..extremely bias

FIRST I HAVE NO VESTED INTEREST IN EITHER PMCORP OR PW CON. I WAS BROUGHT UP IN CHINESE SCHOOL AND TWO OF THE VERY IMPORTANT TEACHINGS ARE ONE SHALL NOT TELL LIES AND BELITTLE OTHERS. I HAVE LOOKED INTO PW CON'S FINANCIAL STATEMENTS THOROUGHLY BEFORE, AND MY OPINION IS THERE ARE NOT GOOD. SO I CANNOT TELL LIE AND SAY PW CORP IS GOOD. I DIDN'T EVEN SAY IT IS NOT GOOD AND JUST KEPT TO MYSELF BECAUSE YOU SAID YOU DIDN'T WANT MY NEGATIVE COMMENTS TO BE SEEN BY OTHERS. IT WAS FINE FOR ME AND I KEPT QUIET.

THEN YOU CAME WITH A POET SAYING I AM BIAS, OK FINE. BUT YOU ALSO SAID I AM DISHONEST, REMEMBER? MEANING I AM A LIAR. SO I POSTED MY COMMENTS ON PW CON WITH ALL THE FIGURES, NUMBERS AND JUSTIFICATIONS. YOU SHOULD COME BACK TO ME AND TELL ME WHERE AM I WRONG IN MY POSTING. NO, YOU DIDN'T. INSTEAD YOU CAME BACK WITH ALL THESE POSTS, IMPLYING I AM LYING. WHAT IS YOUR JUSTIFICATIONS? WHICH PART DID I LIE? IS THAT THE BEST YOU CAN DO?


Posted by anbz > Dec 26, 2013 01:07 AM | Report Abuse

tell him about the 5 cents dividen from pmcorp..haha..his graham net on pw con was again..bias...he then tried making assumption for his own interest...well that 5 cents dividen has proved something..period

PAYING 89 SEN AND GET 5 SEN DIVIDEND, IS THAT A GREAT DEAL?

his comments:
The profit before tax (PBT) in the income statement says that it is 5.4m but in the cash flow statement it is 1.2m, it is a difference of 4.5 times! Which is the correct one? Who is the external auditor? Did I read and misinterpret wrongly? I hope someone can correct me. EPS wise it is between the stated 8.6 sen or less than 2 sen. So which EPS do you use in the Graham Growth formula? I have the strong feeling that the latter one is the correct one because somebody must be trying hard to adjust this EPS.
-------
me:
now does he believes that 5 cents dividen was also means somebody must be trying hard to adjust this EPS.??? or borrowed from bank..to con people? with 5 cents...kiki

DID YOU UNDERSTAND WHAT I WAS SAYING AND REBUKE IT WITH YOUR REASONING?

IS PAYING 89 SEN FOR THE STOCK AND GET 5 SEN DIVIDEND A GREAT DEAL?

---

his next comments:
Poultry farming is a very competitive business. It requires quite some capital outlay and the industry is a price taker. One company which has done very well as one of their businesses is QL Resources. That is because they have a wonderful and dedicated management. Others I am not sure.
---
me:
well...seems he is very sure that pmcorp have a wonderful and dedicated management...lol

and he never comment about this kong kali kong kkp..haha

WHAT KIND OF ANALYTICAL SKILL DO YOU HAVE? WHAT KIND OF DEDUCTIONS DID YOU MAKE? YOU SURE A MATHEMATICS GRADUATE AH?

---
now i know why iafx hates him....because he talks craps mixed with truth...if there is any negative sides regarding his stock of choice..he keeps mum...

WOW SOMEBODY HATES ME? FOR WHAT? OK OK OK I UNDERSTAND YOUR DEDUCTION; IAFX TALK SENSE AND I TALKED CRAP. OK, OK, OK.

Posted by anbz > Dec 26, 2013 01:17 AM | Report Abuse
he never talks negative about pmcorp' s chocolate business...lol
tell him ..that one characteristic of dishonesty is flip flop between stocks...putting certain rules to some stocks ..and excluding it from others talks history about one thing...and left the history of another..haha
talks about pure earning from a business...and keeps mum about another

I DON'T KNOW MUCH ABOUT PM CORP'S CHOCOLATE BUSINESS. I DIDN'T KNOW YOU LIKE SO MUCH TO TALK NEGATIVE ABOUT SOMETHING YOU DON'T EVEN KNOW. I AM NOT ONE LIKE YOU.

LIKE THAT ALSO DISHONEST AH?

he never talks about pw-con making profit every year for 13 consecutive years every year!!!!

REALLY AH? DO YOU KNOW HOW TO READ FINANCIAL STATEMENTS OR NOT?

Posted by anbz > Dec 26, 2013 01:22 AM | Report Abuse
don't buy kfima...it's too expensive...look...another stock recommended
by kcchong...is pmcorp...only 21.5 cents...ask him why he recommends
lousy counters such as pmcorp..hahaha

I NEVER RECOMMEND ANYBODY TO BUY KFIMA, HAVE I? IF I CAN REMEMBER, I TALKED ABOUT THE BUSINESS OF KFIMA, HOW IS ITS OPERATING PERFORMANCE,CASH FLOWS AND BALANCE SHEET. I ALSO TRIED VALUING KFIMA, AND COMPARED WITH ITS PRICE. THOSE WERE WHAT I HAVE DONE. DID I SAY ANBZ, YOU MUST BUY KFIMA, GUARANTEE YOU MAKE MONEY ONE?

I DIDN'T ASK PEOPLE TO BUY BECAUSE I KNOW SOMETHING YOU DON'T KNOW, IE I CAN BE WRONG IN MY ANALYSIS, MARKET MAY NOT AGREE WITH MY ANALYSIS, THE FUTURE IS UNCERTAIN ETC.

NOW YOU SPECIFICALLY RECOMMEND PEOPLE NOT TO BUY KFIMA. CAN SHARE WITH US WHY DO YOU THINK SO? WHY EXPENSIVE? WHAT METRICS DO YOU USE? HEY YOU ARE A MATHS GRADUATE, AREN'T YOU? WE ALL MATHEMATICS INCLINED PEOPLE LIKE TO USE NUMBERS, DON'T YOU?

DID I RECOMMEND PEOPLE TO BUY PMCORP? I REMEMBER I JUST DID A GRAHAM NET-NET VALUATION OF PMCORP AND MENTIONED THAT ITS CASH AND CASH EQUIVALENT IS CLOSE TO ITS SHARE PRICE. THAT WAS ALL I DID. I ALSO MENTIONED THAT ITS CHOCOLATE BUSINESS IS STILL TOO EARLY TO TELL IF IT IS GOING TO BE IMPRESSIVE IN THE FUTURE, ALL BASED ON WHAT I SAW IN THE FINANCIAL STATEMENTS. WHERE DID I RECOMMEND YOU TO BUY PMCORP?

PMCORP IS A LOUSY COUNTER? DID I ACTUALLY TALKED ABOUT "COUNTER"? MOST OF THE TIME I TALKED ABOUT BUSINESS. THERE IS A BUSINESS BEHIND ALL STOCKS.

Posted by anbz > Dec 26, 2013 01:28 AM | Report Abuse

ask him to make future FCF which must be the average of the FCF of last 5 years for pmcorps...u'll be surprised....ripley's believe or not..he will make u believe...lol

DID I PROJECT THE FUTURE FREE CASH FLOWS OF PMCORP WHEN I DID THE GRAHAM NET-NET VALUATION? DO YOU KNOW WHEN SHOULD WE USE ASSET-BASED AND EARNINGS-BASED VALUATION MODEL TO GET THE INTRINSIC VALUE OF A COMPANY? BY THE WAY, DO YOU KNOW WHAT INTRINSIC VALUE IS? WHAT IS MARGIN OF SAFETY ETC? I GUESS NOT. ALL YOUR POSTS ARE ABOUT SHARE PRICES, WHICH DAY WHAT PRICE, GORENG THIS, GORENG THAT.

YOUNG MAN, IF YOU CONTINUE DOING THIS, YOU GOT NO FUTURE IN YOUR INVESTING EXPERIENCE. TRUST ME.

Posted by bsngpg > Dec 25, 2013 11:12 AM | Report Abuse

I have 2 lemons which are Notion and JTiasa which constitute 10% of my portfolio. Both suck.

bsngpg, I don't think those two stocks are lemons. JTiasa has durable business in palm oil and timber. They will continue to make money and likely to give you the normal return of 10%-12% a year, even with your high purchase price, I believe.

The problem is this type of business, or rather commodity prices is cyclical. You happened to buy the stock right at the peak when palm oil price was reaching the peak, and at the same time, too positive feelings that prices will continue to rise. Hence you paid a high price.

That is why sometimes we value a stock, we have to think about cycles, and the swing of the pendulum. It is inevitable.

Part of Notion's business become obsolete. They will improve and keeps up to the new technology, i think. And they still have the good camera division which has been doing pretty well all the time. NASDAQ is picking up now, and may be Notion will follow suit.

The base FCF I used for the estimation of future FCF is the average of the FCF of last 5 years, ie 69794.

You notice last year's FCF is very usually low at about 3m only. The FCF before that are much higher. For example 2012 FCF is 105m, 2011 114m etc. Last year there was a build up of inventories and receivables which were unusual. Anyway I have checked the first quarter 2014 cash flow and most receivables have collected and inventories reduced. So it appears to be ok.

So I think the average 5-year FCF used as the base is conservative enough.

Ntpboon, the person whom you can learn more about Dsonic is uncle z in this forum and his blog. I know very little about it except from its financial reports.

faberlicious, wah you so sharp ah.

Anyway, thinks for the corrections.

I do not how I got the 49916, NI. the annual report is 52317.

Ivory Properties
Ivory property was also recommended by the same famous investor. Earnings appears to be good relative to price. However since listing, I see no money from its operations, but more and more debts. Financial report is doggy with one-time revenue as gain and cash flow from ordinary business. Recently it even announced taking over the Plaza Rakyat for redevelopment. Don’t know if it has the financial and technical capability to do so. Its share price has risen from 49 sen at the beginning of the year to 77 sen in May, but dropped back to 58 sen now. For sure there were people making money from the rise, but I think more people, especially retail investors losing money on the share price was on the downward side.

London Biscuits
A similar story is about London Biscuits. Made very good earnings also relative to its price. But the plot is the same; no cash flow, increasing debts, management manipulations of PPE etc as shown in the following article here:

http://klse.i3investor.com/blogs/kianweiaritcles/40683.jsp

Sometimes a company in a good and durable food business may not be a good investment.

Malaysian Pacific Corporation Berhad
MP Corp is another company which investors live with hope; hope that the management sells their land, which they valued the same high value as the neighboring one which was transacted, and distribute the cash to them. The company is doing nothing at the moment except paying for the costs of holding some land and an investment property estimate to worth a lot of money, if sold. I was told off that I was not in their league of making multi-baggers from the market as them and was asked to stick to my Dutch Lady and BAT (Actually I didn’t have any of these stocks) to earn the 10% return a year when the share price of MP Corp spiked to 54 sen . This was what I said:

• But remember, even though everyone is making money except you, it is ok.

MP Corp share price has since retreated by 30% to 38 sen now.


In actual fact,It is always not easy to predict if a company would do well in the future and that its share price would rise. It is much easy to see if a company is likely not to do well. So I like to remember what Charlie Munger says:

• “You don’t have to pee on an electric fence to learn not to do it.” - Charlie Munger


KC Chong on Christmas Day in Auckland 2013


Table 1: Return of some stocks in Bursa
No. Company Ref Price Price 24/12/13 Gain/loss
1 Pmetal 2.520 2.320 -7.9%
2 GCB 1.800 1.400 -22.2%
3 Ivory 0.550 0.580 5.5%
4 PW 0.720 0.880 22.2%
5 Rsawit 0.850 0.785 -7.6%
6 LonBisc 0.680 0.675 -0.7%
7 KNM 0.455 0.435 -4.4%
8 MPCorp 0.450 0.380 -15.6%
9 MKLand 0.330 0.360 9.1%
10 Careplus 0.315 0.310 -1.6%
11 CSL 0.750 0.195 -74.0%
12 AnComLB 0.185 0.185 0.0%
13 Smartag 0.180 0.100 -44.4%
14 Amedia 0.135 0.080 -40.7%
15 NovaMSC 0.065 0.065 0.0%
16 Hibiscus 1.900 1.840 -3.2%

xx Average xxxx xxxx -11.6%
xx FTSE Mid70 12294 14043 +14.2%

AMedia is a stock which is very dangerous for retail investors. It appears to have reasonably good earnings, and its PE ratio at 13.5 sen one year ago was a low single digit too. It even has good cash flows from operations. Its balance sheet is also nothing to fault about. But why is that Amedia required to exercise cash calls in right issues and private placements so often? A thorough screening through its financial statements show something is not right, a financial shenanigan?

http://www.intellecpoint.com/search?q=asia+media

AMedia’s share price has since fell from the adjusted price of 13.5 sen a year ago to 8 sen now, for a drop of 41%. It was even much higher than 13.5sen before that. There appeared to be a lot of share price manipulation, pumped and dumped, by insiders too. Plenty of blood is spilling everywhere for these two stocks.

KNM
Another of my “favourite” lemon which I was frequently asked is KNM. There are many loyalists for KNM, despite all the deceits, spinning from the major shareholder and management. I don’t know why but I guess it is hope again. KNM was the darling of the market. It had big plans; foraying and making its foot prints all over the world with big acquisitions. It reminds me of Enron. Each time I was asked about it, I gave bad comments.

KNM has been losing money almost every year in his operations. Cash ran out and many cash calls were made. Even when it said it made money I have doubt about it because it often did not reflect in its cash flows and balance sheet. Some may say. “don’t worry, it has a lot of assets”, but its assets are of very low quality; PPE of which not sure what is the realizable value, doubtful receivables and work in progress, inventories, goodwill and intangibles. Its debts and liabilities are huge. It may end up the only value KNM has is just an option value, minimum of zero and something questionable.

KNM’s share price dropped by just a couple of sen a year ago to 43.5 sen now. Actually it has nothing much to drop already. The blood has already spilled years ago. Yet many punters are still hoping that the insiders will fry the shares for them to make money. KNM’s share price did rise up to 60 sen middle of this year, but I am sure who are the people who made money, and who were the ones who lostt. A good place to read about the comedian story about KNM is as appended below:

http://whereiszemoola.blogspot.co.nz/search?q=knm

When people asked me if they should keep the stock, I like to cite this Sioux Indian proverb:

• When you realize that you are riding a dead horse, the best strategy is to dismount.

China Stationery Limited
CSL is a typical stock which punters should avoid. There are many more of these kind of companies in Bursa. Its annual report shows they are making tons of money with plenty of cash flows and cash in bank. And yet the major shareholders dumped the share, millions of them. Yes, he is very noble and wants to share and enrich the public with the huge earnings the company made and its cash in banks. So he offers the stock at 75 sen to the public when it has 19 sen earnings, and 70 sen cash per share. I fact now you can buy CSL at 19.5 sen. What a bargain of the century!

Guan Chong Berhad
Guan Chong Berhad is recommended by a famous investor a few months ago (I have great respect for this famous investor, I really do, but everybody can make mistakes). It appears to be making profit year in year out. However, few people looked a little deeper; why is it the total debts have been increasing at such a fast pace, and that there is hardly any cash flows from operation, not to mention about free cash flows. Something is definitely not right. Why can’t GCB show us the cash? Are they speculating (not hedging) on Coco future? Finally the straw broke the camel’s back. Its last quarterly financial results finally showed a loss of 12m. Not much but is it the end of the story? I doubt so. I think there are still a lot of skeletons behind the closet. Its share price dropped by 22% from RM1.80 to RM1.40 since then. Interesting stories to read at the same link below about GCB.

http://whereiszemoola.blogspot.co.nz/search?q=gcb

Yeah, it is good to practice value investing; buy companies at a good price using PE ratio, dividend yield. We must understand what this “E” means for that particular company, where did the company get the money from paying that good dividend.

To be continued

Pitfalls in the stock market: A reflection of the year 2013

“We do not learn from experience; we learn from reflecting on experience.” — John Dewey

In the stock market, we always hear about success stories. They are glorifying and morale boasting. Seldom do we hear people telling us they have lost money investing/speculating in the market. It is demoralizing and not good for the self esteem. People would look down on you (I don’t care much). However, the fact remains that most people lost money in the stock market. You don’t have to agree with me, but this is what the research has shown:

In their 2009 paper on “option trading and individual investor performance” , Rob Bauer, Mathijs Casemans and Piet Eichholtz examine the performance and persistence of individual investors trading at a Dutch online broker. Using a database consisting of more than 68,000 accounts and eight million trades in stocks during January 2000 to March 2006, they find that: During 2000-2006, the average investor has negative alphas, meaning the return is below the market return. Not even the top tenth of performance manages to beat the market consistently. Those in the bottom tenth of performance lose more than 90% of value.

So with the above, I always wary about the lemons in the stock market. My basic principle in investing is always to be prudent; focus on the downside and the upside will take care of itself (Mark Seller). So what are some of the things to look for to avoid the downside?

Let us look at some of the hot Bursa stocks which some people in i3 forums asked me about in the past one year as shown in Table 1 below in the appendix.

First I must clarify that I really didn’t know those stocks well except from their past performance as shown in their financial reports and their business models. My comments were strictly about what I think about their fundamentals. I have most of the time qualified that I would not know about their future price performance. Yet very often, people ridiculed me for being “wrong” as some of those stocks I opined that one should avoid, went up in price subsequently. However, I must also say that when I put forward a strong negative opinion of certain stocks, which I seldom do because of the unpredictability of the market, they often come out to be quite true.

Hibiscus
For example I have very strong and negative opinion on SPACs, Special-Purpose Acquisition Companies (See link below).

http://wealthmanagement.com/investment/staying-out-murder-holes

I cannot figure out how an investment process can be based on hope; hope of the opportunity to strike oil big while other bigger international companies are denied of that opportunity. Hibiscus share price was chased up by 80% from RM1.50 to RM2.70 in just four months from August to December 2013. This was just because it has acquired a stake in a drilling company, presumably somebody admired this Dr Kenneth so much and sold him this wonderful top-notched technology cheaply. Its share price just jumped because they were given some licenses to explore oil in some countries, presumably they are more deserving than many international oil exploration companies. Its share price can also jumped just because of rumours that when or when the drilling machine would reach the destination, and when start drilling, as if oil would definitely ooze out as soon as the drill rig is lowered. Well, it is still early to know how many investors/punters will make money, but already many retail punters are spilling blood everywhere as its share price has dropped by 32% to RM1.84 in just three days and suspended in trading for two days. We don’t know what would happen when it resumes its trading tomorrow on Boxing Day. In investing, sometimes too much positive feelings can be detrimental to your ioutcome.

Smartag and Asia Media Group
There is a group of “investors” who are closely knitted and I was asked about two stocks; Smartag and Asia Media Group and I did not give positive comments about them as they expected and hence I was not welcomed. Well, that was not my problem.

Again investing in these two companies are also based on hope, and positive feelings; Smartag has been hoping, and still hoping after so many years, that the Royal Customs Department would give them the ultra lucrative contracts of RFID tracking the containers (?). There were also plenty of positive feelings among the group and practical holding each other’s hand. At the mean time, it has no business, and burning cash from the IPO money every year. There is not much cash to burn any more. Its share price has dropped by 45% from 18 sen a year ago to just 8 sen at the close on Christmas Eve, not a good Christmas present. Its share price was actually more than 40 sen 2-3 years ago. A good read about Smartag here for smart people.

http://whereiszemoola.blogspot.co.nz/2013/03/smartag-sinks-deeper.html

To be continued

Posted by houseofordos > Dec 24, 2013 09:04 AM | Report Abuse

bsnpg, I am not an expert but I think these 2 items can be found in the balance sheet. My understanding is that these 2 items are just added to PV of Free cashflow for the firm (FCFF) cause they are not the core segments of the business or just investments.

In first stage of DCF calculation, FCFF calculation only involves the FCF generated from core business which is Cash flow from operations minus capital expenditures. In order to get the FCFE (free cashflow to equity holders which is you) need to add back the present value of those investment items, excess cash and minus debt and minority interests.

Perhaps our FA guru KC Chong can explain in a more elegant way.


"I have nothing extra to add". Well done houseofordos.

I find Kuchai is a very straightforward case. It is purely a holding and investment company, nothing else. I didn't look at the other two companies initially. Just glanced through Sg Bagan, and it seems to have more work to do to present a case like what I did for Kluang.

I think the other two companies are equally undervalued. However, as Kuchai really has no viable business at all and it is most likely subject to some corporate exercise like prioritization, or SC may come hard to them to do something. That could unlock its value.

What make a buy a good one?
1. Price is low relative to the value
2. Potential return is high relative to risk

All the three companies nicely meet the above criteria.

bsngpg,

Non-operating cash is cash +short-term investment

Those numbers were obtained from the latest balance sheet on 30/9/2013, not the fy 2012 one.

nokenzo,

PV of FCF is the discounted amount of all future FCF to the present value using a discount rate. Future FCFs are estimated. I found one link for this which is more comprehensive for you to read and understand.

http://klse.i3investor.com/blogs/edu_morg_star/31605.jsp

Tan KW, I suggest you include houseofordos's 2014 portfolio for sharing.

Excellent and detailed analysis on Cenbond. Almost all angles were covered. Yes, Cenbond is a buy.

I suggest you start to share your analysis and portfolio for 2014.

Posted by nokenzo > Dec 23, 2013 06:49 AM | Report Abuse

Hi KC, what does PV stand for?

It stands for present value, what is the worth of the stock now. Or the intrinsic value of a stock.

http://www.investopedia.com/terms/p/presentvalue.asp

Posted by bsngpg > Dec 22, 2013 04:24 PM | Report Abuse

Hi KC Chong : I am referring to your post on Sep 8, 2013 07:16 PM on “Blog: Stock Pick Challenge - [KFIMA] by kcchongnz” .

Can you please tell me where did you get “minority interest 354.5m” ?
Thank you

If you refer to the income statement of fy 2013, total net income is 104.3m of which 26.9m, or 25.8% belong to minority interest. So when I got the FCFE of 1371.8m for the equity shareholder, I proportionate that percentage, or 354.5m for the minority interest. the remaining FCF then belongs to the common shareholders of Kfima.

Frankly speaking, I have never seen any analysis doing like that and hence I am not 100% sure if it is the right way of doing so although I feel it is correct way. Most analysis only have the analysis of the ordinary business and there is no items like "minority interest", "excess cash", "investments", "associate companies" etc which is not consolidated into the ordinary business. What do you think then?

houseofordos,
When you keep on reading these investment books from proven successful investors, you have gained a lot of insights in investing and may have known more about value investing than me already. Good on you.

since you asked me about this, let me just try to put forward what I think.

Business economic moats are certainly important. Some industries can make money easier than others. For example banks which borrow money from depositors at low costs and lent to businesses with more than double the interest rate would definitely a business with moat. Notice that they also charge depositors all kind of fees in personal banking, selling financial products and earn a clean fee etc. In Malaysia, all well management banks make lots of money. It is a money generating industry.

Business services with light assets like well established Jobstreet, Prestariang etc also have wide moats. They earn high margins and ROE and have huge free cash flows.

As society becomes more affluent, health care services represent wide economic moats due to the demand of its services. Think of KPJ. There are also many other industries having wide economic moats which one should look into when investing.

On the other side, I view construction as not much of economic moat due to the competitions in this dog-eat-dog world. However, it doesn't mean we can't find one with good moat. For example, it has its niche in the foundation works. No developer who always want their foundation work to be completed would trust a new comer to complete their work in short time. They do not mind paying higher price to have a peace of mind that their project can be completed within the time.

Moat is not only judged qualitatively. It can be quantified with numbers too. For example, why could one say Pintaras because it is in construction, it has no moat when it's margins are in the 30s and ROE and ROIC also more than 30%?

Economic moat of a industry is hence important. But gain for an investment thesis to work, I believe it still have to fall back to number crunching; what is its value. and how much higher price should one pays.

thwalim,
I have said many times valuation, whatever method one uses, is an art and not a science. It just gives a guide. Everybody has different value but generally they should be approximately close to each other.

For example, what is "adjusted ebit"? I may use the average ebit margin of 3 years, 5 years etc and get the adjusted ebit for next year. Somebody may use last year's ebit to start with. Income tax, I may use the tax/Ebit rate for last year, or tax/NI. For D&A and capex, I may have again use the average over a number of years. The important thing is a net maintenance capex, ie capex less D&A. Sometimes i use D&A as 50% of average capex of last few years because this capex and D&A bounces up and down each year. Cost of capital, again it depends on the cost of debts and cost of equity you assume. Debts are total debts in the balance sheet. Cash is the excess cash, plus investment assets not consolidated into the ordinary business of the company.

So there is no right or wrong, more of if those numbers you use make sense or not. I believe if you use sensible data and assumptions, your EPV should not be very far from mine.

Revenue 2012 103246
Adjusted Ebit 17292
less income tax -2594
Net operating profit after tax 14699
Add average D&A 1389
Less average capex -3730
Normalized Ebit 12358
Cost of capital, R 9.8%
Capitalized earnings=Ad Ebit/R 125497
Add cash 24471
Other investments 0
Less debts -3054
EPV 146914
Less minority interest -17983
EPV to common shareholders 128931
Number of shares 200000
EPV/share 0.64

Posted by bsngpg > Dec 22, 2013 09:12 AM | Report Abuse

Hi KC Chong:

There is one great news to share while expressing my thousand thanks to you is that I have preliminarily understood DCFA and known how to calculate DFCF(IV) of Presta and KFima by reverse engineering your works. There are still few points need further understanding. I will perform more reverse engineering on your works i.e. Homeritz to improve my understand on DCFA.


That is indeed a very good news to me. See how many times I have said it is not that difficult to acquire investment knowledge. It is a matter of if you are willing to and have the time and perseverance.

With your experience and knowledge, and a few others here who have the same investing principle and mind set, we can share investment knowledge in the future.

Growth, growth and growth

Some people may wonder why I emphasize in value, value and value and not growth, growth and growth in investing. Is growth investing separable from value investing?

A firm with a higher growth will grow its earnings at an accelerated rate compared to a low growth firm. Assuming a firm A earns 10 sen a share a year now and it pays no dividend, with all its earnings reinvested into the business with the same return. Assuming its earnings grows at 10% a year. In 5 years time, its EPS will grow to 16 sen (10*(1+10%)^5). If the growth rate is 30%, EPS after 5 years will be 37 sen, more than double that of the growth at 10%. Table 1 below shows the EPS at different growth rate.

Table 1: Earnings growth rates
Earnings growth 5% 10% 15% 20% 30%
EPS in 5 years $0.13 $0.16 $0.20 $0.25 $0.37

So shouldn’t a stock with higher expected growth rate sell at a higher valuation? Of course it should, but that is only the first-level thinking. But one needs a second-level thinking; that is how much higher should it be? This still brings us to the concept of value investing, value, value and value; that “The value of a firm is the sum of expected future cash flows generated by the firm discounted to the present value”.

Assuming stock A above is selling at $1.00 and hence at a PE ratio of 10. Let’s say my required return investing in A is 10%. In 5 years time A’s EPS grows to 16 sen. Further assume that A is still selling at a PE of 10 in 5 years time, or $1.60. The present value of this future cash flow is also $1 (1.6/(1+10%)^5). So if you have bought the share at $1, you are paying a fair price. If you pay 1.50 for the stock now, or at a PE of 15, you are paying a high price; but you pay 50 sen for it, or at a PE of 5, you got a real bargain.

Now let us look at a stock B with present EPS of 10 sen also but a high expected growth rate of earnings of 20%. Its EPS will grow to 25 sen in 5 years time. Assuming you pay a higher price at $2 to buy B now, or a PE of 20 and after 5 years, it is still selling at a PE of 20, the price then will be $5.00 (20*0.25). If you discount this price at 10% back to the present value, it is $3.10, more than 50% above the price you pay. You got a great deal even if you pay a higher price of PE of 20 for a stock B growing at 20% for the next 5 years. Table 2 below shows the effect of growth rate and PE ratios on the fair prices of stocks.

Table 2: Effect of growth and PE ratio on stock prices
Earnings Growth PER
$1.00 5.0 10 15 20 25 30
5.0% $0.40 $0.79 $1.19 $1.58 $1.98 $2.38
10.0% $0.50 $1.00 $1.50 $2.00 $2.50 $3.00
15.0% $0.62 $1.25 $1.87 $2.50 $3.12 $3.75
20.0% $0.77 $1.55 $2.32 $3.09 $3.86 $4.64
25.0% $0.95 $1.89 $2.84 $3.79 $4.74 $5.68
30.0% $1.15 $2.31 $3.46 $4.61 $5.76 $6.92

We have seen that it is justified to pay a higher price for stock B which has a higher growth than A. If investors see the consistency of the growth in B, they may be willing to pay a higher valuation for it 5 years later. As shown from Table 2, if the rate of growth is maintained at 20%, and valuation expanded to a PE of 30, the present value of stock B is worth $4.64.

The problem is the “growth” we are talking about is the future expected growth, a forecast figure which is very difficult to predict. The growth estimate, especially those with very high rates often do not last long enough to justify the high PE. In the case of stock B, if the forecast growth rate is lower than expected, say at 10%, instead of 20%, and that the PE ratio contracted to 15 as a result, investors who have paid $2.00 initially, would have its present value dropped to $1.50 as shown in Table 2. Even analysts got their forecasts wrong most of the time. So how good is yours?

thwalim,

You compute the percentage of net profit attributed to minority shareholders from the income statement. For 2012 results (note that Homeritz's 2013 results already out), the percentage is 2050/16750. Then multiply the EPV(146914) by this percentage.

This is what I have been doing. Hope others can comment.

This is painting the tape. In the old days, punters looked at the tape for the price movement. So insiders traded and manipulated the stock prices as shown by the tape. Small retail punters simply have no chance, absolutely no chance to gamble with them.

Hibiscus share price dropped in such a fury by 32% from RM2.70 to the close of RM1.84 from just three days ago. Its warrant fell by 36% from RM2.08 to RM1.32 for the same period. Very seldom see such fast and fury action.

Hibiscus is no exception. Three months ago Sersol warrant dropped from 91 sen 35 sen, exactly the same way as Hibiscus.It is trading at 31 sen now.

Other similar cases are TMS, Ingens and Asupreme warrants etc. For punters who wish to make money gambling with insiders and manipulators, it is a jungle out there.

Hibiscus warrant, anyone?

This morning, Hibiscus share price closed 2 sen up to RM2.13 with a volume of 2.9m while its warrant diverged and closed down 6 sen to RM1.55 with a volume of 11m shares. Why?

Hibiscus Wa has 8 months to expire. It has an exercise price of 50 sen. At the prices stated above, the intrinsic value of Wa is RM1.63. That is right. At RM1.55, Wa is trading at a discount of 4%, plus 8 months of free time value. Can't you see the big fat frog jumping all around?

But wait! Before you jump in and buy loads of Wa, think about these:

1)Who are those selling the warrants? Who got the most number of these free warrants in the first place?
2) Why did they sell the warrant with such a discount?
3) Why didn't they convert to Hibiscus share and then sell at a higher price?
4) Are they stupid? I don't think so.
5) Why the buy volume of the underlying share (which went up)is so much lower than the sell volume of warrant (which went down)?

There are simply too many whys. Don't you think so?

Let's have a cup of black Cappuccino or flat white to get a clear mind.

The 3.9 you mentioned is the EV/Ebit, not EV. For computation of EV, please refer to the following link:

http://klse.i3investor.com/blogs/kianweiaritcles/37729.jsp

Ebit is the earnings before interest and tax. For Homeritz, it was 20.7m last financial year. EV I got is 104.8m. It changes because of the market capitalization affected by the changing share price. For its latest price of 65.5 sen now, the computation is shown below:

Market statistics Homeriz
Price 0.655
No of shares 200000
Market capitalization 131000
Minority interest 5855
Total debts 2672
Excess cash -34710
Enterprise value, EV 104817

Ebit 20703
Earnings yield, Ebit/EV 20%
EV/Ebit 5.1
EV/Ebitda 4.5
EV/FCF 5.9
EV/Sales 0.9

I think investment is the same thing as in real life.

There is this stock which was selling at an adjusted price of about RM1.20 about 8 months ago for quite a while. I was trying to buy more but was hoping to get it a couple of sen less. However I failed to get that price and its share price then shot up. I did not buy any more as I thought it was already "expensive". Instead I sold off some of my holding in it at about RM1.50, hoping to buy back cheaper later. Eventually I bought some more when a much higher price at RM2.50. It is now selling at about RM2.90. This type of thing used to happen to me all the time; buying higher instead of lower, and selling lower instead of higher. I admire those people who always able to getting in and out of the market; buy low and sell high, and buy back low, and sell high again, and repeat. Just wondering how come they are so 'special".

So my conclusion is since I can't do like what they can do, I will still stick to my principle of "value, value and value". One must have a good feel of the value, and if the price is still way below the value, a few sen difference is not an issue. Lost of opportunity is a bigger issue to me. Of course your estimation of the value must be right.

Strangely enough, Bursa still provide that kind of opportunity to earn extra-ordinary return from investing in the market, in stark contrary to the efficient market hypothesis.

Posted by chang0509 > Dec 19, 2013 09:30 PM | Report Abuse
Parkson has drop to this level. Will you consider to buy in and keep for long term? Is it worth to invest in this counter now?

Parkson has had its days 10 years ago when the Chinese economy was doing extremely well. After the US sublime crisis, its profitability has declined by a wide margin.

Last year it earned 22 sen a share. With the price now at RM3.08, PE ratio is 14. This ratio is not expensive for a company like Parkson. However first quarter 2014 ended 30/9/14 showed continued deterioration of its bottom line when net earnings per share dropped severely by 50% to 2.85 sen per share.

Whether Parkson can turnaround depends very much on the recovery of the Chinese market, and its success in foray into the some Southeast Asian countries. This requires detail analysis of its business there which is beyond what I can do.

Below is what I have commended before. Note that Parkson's business has deteriorated since then.


Posted by kcchongnz > Jun 2, 2013 12:28 PM

Is Parkson a good company? Is it a good investment?

Posted by yfchong > May 31, 2013 02:14 PM | Report Abuse
bro KC from nz, any change to comment on Parkson..

Yeah, felicity has written a good analysis on Parkson and there are also valuable comments there. Go and have a read.

For me I still think Parkson is a good company. That is despite that its growth has slowed down considerably these two years. Its margin has also contracted, quite badly to 15% based on its 2013 ttm results, down from 20% a year ago. ROE and ROTC also suffered quite badly, retreating to 12% and 5% respectively. This is mainly due to the slowdown in the China market. Parkson has forayed into Indonesia, Vietnam and Sri Lanka. So Parkson’s continuous success very much depend on the recovery of China’s economy and the success in those new countries.

Below is my assessment of Parkson if it is a good company and a good investment.

Parkson a Good company? 3.82
Good governance Yes
Durable business Yes
Growth No 2.3% in revenue
ROTC No 5% <WACC
Balance sheet Yes 0.33 D/E
Cash flow Yes 157% CFFO/NI

Screens for investing
ROTC No
P/B Yes 1.5 <2.0
PE ratio Yes 14.4 <20

If you buy Puncak CA at 14 sen now when the underlying share price is 3.34, you are paying 10 sen as time value as 4 sen is its intrinsic value (3.34-3.10)/6. So if Puncak is de-listed, you lose all the time value of 10 sen which is made up of 70% of its value.

If the company is taken over at the present price, you will probably lose all the 10 sen time value. If it is privatized at 3.90 (17% higher than present price)as suggested by you and if is concluded before the expiry of the call warrant, you will get settlement of 13.3 sen (3.90-3.10)/6. Noting to gain also.

so why take the risk punting this call warrant when the potential of gain is limited?

This was what I wrote when PW corp just published its 2012 end of year report in February. PW Corp surely looks like a trash to me.

PW announced its financial year ending 31/12/2012 on 28/2/2013. It made 8.6 sen a share and its asset backing per share is RM3.63. With the market price today at 42.5 sen, if you don’t quickly go and grab some shares, you are an idiot. So is investing that simple, just look at PE ratio, PEG, price-to-book value and apply Benjamin Graham Growth Model etc?

The profit before tax (PBT) in the income statement says that it is 5.4m but in the cash flow statement it is 1.2m, it is a difference of 4.5 times! Which is the correct one? Who is the external auditor? Did I read and misinterpret wrongly? I hope someone can correct me. EPS wise it is between the stated 8.6 sen or less than 2 sen. So which EPS do you use in the Graham Growth formula? I have the strong feeling that the latter one is the correct one because somebody must be trying hard to adjust this EPS. Believe me, there are thousands of ways a creative accountant can manipulate this EPS. Can’t help myself, I have seen this way too often in Bursa. I have seen company utilizing tax credit as earnings, booked claims they think others owe them as earnings. Very common. Worse still I first time saw a company treated its “Bargain purchase gain on acquisition of subsidiaries” as part of the earnings. Companies treating extra-ordinary gains as ordinary earnings are abundant in the Bursa, I believe. These are grossly wrong and can even be considered as frauds.

What is the meaning of PW revaluate its property, plant and equipment and gives an extra-ordinary gain of 89.9m? Are they going to sell these properties and that buyers are willing to pay for these newly revaluated and inflated assets? What is the motive behind this revaluation? PW’s major asset is its PPL of 243m, or 4.00 per share, newly revaluated. Its other assets are inventories and receivables which made up a total of 76.5m, or 1.10 per share. The stock of inventories requires 10 months to clear and the receivables 5 months to collect, very long time indeed. How is the quality of these assets as compared to those of Daiman above? Big difference in my opinion. So what is the fraction of the assets I would take into consideration as “real”, or probably be collected under a fire sale? I will arbitrary assume just one third of it. This will give this asset value of Rm1.80 per share. Coincidently, this is the amount the company owes the banks, the IRD and its creditors. So unless you put a higher realizable value for its assets, PW doesn’t justified as an asset play either.

Poultry farming is a very competitive business. It requires quite some capital outlay and the industry is a price taker. One company which has done very well as one of their businesses is QL Resources. That is because they have a wonderful and dedicated management. Others I am not sure.

KC Chong in Auckland 15/3/2013

PW corp's share price just rose recently. Whether the rise is justifiable or not, we will talk about it the next time when I make a detail analysis of its business.

But if someone has bought it 10 years ago when the share price was RM1.35, he will cry with no tears. Look at the share price performance of PW corp for the last 10 years below. Does it justified to be a good company to invest in?

Year 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003
Years ago 0 1 2 3 4 5 6 7 8 9 10
Price 0.890 0.450 0.435 0.480 0.400 0.450 0.545 0.595 0.575 0.760 1.350

The next chapter will be the performance of its business and what rubbish kind of assets it has. Coming soon.

Posted by kcchongnz > Dec 19, 2013 04:56 PM | Report Abuse X

Posted by anbz > Dec 19, 2013 12:16 PM | Report Abuse

haha PW is up again...i'm really upset when kcchong commented on pmcorp and PW...he misused the trust people put in him...that's what i think..whatever he said..really disappointing..

I DON'T GIVE A DAMN IF PW CORP SHARE PRICE IS UP OR NOT. I DON'T GIVE A DAMN IF YOU ARE DISAPPOINTED WITH ME OR NOT. BUT PLEASE CLARIFY HOW DID I MISUSED THE TRUST PEOPLE PUT ON ME.

i thought he is a person with knowledge...and honesty...someone u can hope to be a friend...

NO, YOU DON'T HOPE FOR ME TO BE YOUR FRIEND. WE HAVE TOTALLY DIFFERENT WAVELENGTH AS YOU KNOW.

SO YOU IMPLY I AM DISHONEST? PLEASE SUBSTANTIATE.


what can i say? and that time i was expecting him to say something good about PW..with his knowledge.....someone to rely on......

FOR ME THERE IS NOTHING GOOD TO TALK ABOUT PW CORP. I WOULD GIVE MY DETAIL SUBSTANTIATIONS IN DUE COURSE.

and he's talking about graham net??? but he refuse to use the method on PW..

PW CORP CAN'T SMELL THE FART OF GRAHAM NET NET.

and degraded PW...and talked about neglecting historical profit..while he always did that when promoting his stock....

I WILL LOOK INTO PW CORP AGAIN AND SEE ITS "HISTORICAL PROFIT" IS THERE AND WILL WRITE ABOUT IT. I DON'T REMEMBER SEEING THAT.


haha..this is life...no offence kcchong..u are still the sifu...but not mine..anymore..because i need a honest sifu...sigh

ME YOUR SIFU? DO I NEED A STUDENT LIKE YOU? HOWEVER I STILL NEED YOUR SUBSTANTIATION WHAT DO YOU MEAN BY I AM NOT HONEST.

Posted by passerby > Dec 18, 2013 10:04 PM | Report Abuse
Puncak-CA....one and the only cheapest leverage alternative to Puncak-WB

Puncak CA at 14 sen and a premium of 18% is not cheap. Although it has another year to expire, it is risky because of the takeover talk by the Selangor Government. When taken over, all the time value of CA is lost. Its intrinsic value is only 4 sen. Option pricing also shows it is way overvalued.

Puncak Wb is not attractive too as the gearing is only 1.3 times. Not worth.

gearing level approximately 4.1 times at today closing....
Warrant Price Ex-Price Ex-Ratio Expiry date Premium Gearing
CA 0.140 3.100 6 15/12/2014 18.0% 3.98
Wb 2.480 1.000 1 20/07/2018 4.2% 1.35

Posted by passerby > Dec 18, 2013 09:56 PM | Report Abuse
@ex-contractor, your heart still strong ? CMSB-CA & CC, look see look see for the entry....
they like to toy with the underlying

Although the call warrants have some months to expire, and premium not too excessive too, the low gearing now at about 3 with CMSB at RM6.62 do not look attractive to me. Furthermore the profile of the warrants is not attractive when using option pricing of Black and Schole.

CW Price Ex-Price Ex-Ratio Expiry date Premium Gearing
CA 0.240 5.10 7.00 18/07/2014 2.4% 3.9
CB 0.375 4.50 6.00 30/09/2014 2.0% 2.9
CC 0.270 5.00 8.00 24/10/2014 8.2% 3.1

sklyte,

This is the modus operandi of syndicate play; pump up the underlying share, entice suckers to buy discounted warrants when they unload them, and then dump the underlying like a waterfall as there is no fundamentals to support the lofty price of the underlying, only with hope.

I see it all the time, over and over again.

Posted by kcchongnz > Jun 3, 2013 03:42 PM | Report Abuse X

Is SBCCorp a good company? Is it a good investment?

Posted by ccs999 > Jun 1, 2013 04:02 PM | Report Abuse
Hi kcchongnz, any comments on Cenbond 7171 & SBCCORP?
Appreciate your commenrs and thanks.

SBCCorp’s share price shot up from RM1.00 to RM1.58 now, for a 60% gain just in 3 months. Wow! Even at this price, it is trading at a PE of just 5 and a price-to-book value of just 0.5, damn cheap isn’t it? So the momentum is there and the valuation is undemanding, what are you waiting for?

But wait, this thread is about finding a good company to invest, then only check if it’s valuation is not to high before investing. Let’s don’t jump the gun and evaluate if SBC is a good company or not first.
Siah Brother has been an established name in construction, in particular the superstructure construction. By superstructure I mean the building from above the ground, after contractor like Pintaras has done its foundation and basement work. Superstructure construction works has been a very competitive work and margin and profit is low. In fact the margin for SBCCorp is surprisingly high at 21% last fy. That was because of the inclusion of investment and other income. However the turnover of SBC is surprisingly low at 127m last year. Even with such seemingly good results last year, ROE is only at 9.2%, below my required return. ROIC at 8.8% is also not good enough, hardly above the weighted average cost of capital.

There is also up and down in construction and with many inherent problems in the industry. Unless that company is big and has influence, or it has a niche (like my favourite Pintaras), it is really hard to survive in this dog eat dog environment. Many construction companies, some high fliers, have vanished into the thin air after each crisis. Hence I could not myself rate SBCCorp as a good company. Below is my assessment:

SBCCorp a Good company? 1.580
Good governance ?
Durable business No
Growth No
ROE No 9.2% <12%
ROTC ok 8.8% *=WACC
Balance sheet Neutral D/E 0.26
Cash flow ok

Screens for investing
ROTC Neutral 9% *=WACC
P/B Yes 0.5 <2.0
PE ratio Yes 5.0 <20

Posted by iWarrants > Dec 18, 2013 10:37 AM | Report Abuse

can you advise on instaco-wb kcchongnz? previously rhb gave tp of 0.5, although the the project is ongoing if you look at the financials. is this a good time to accumulate? Premium now is 70% gearing 2.21.

The major shareholders issued to themselves huge amount of free warrants and they immediately dumped into the market at huge gain. At whose expense? The shareholders who believe in their spin and the naive followers who believe that they are so kind.

Anyway, at a premium of 70% when underlying share price is 26.5 sen and warrant at 12 sen, and also the high implied volatility of 60%, I do not think it is a good buy.

RHB gave a target price of 50 sen? So you know why now? If not you may not know you are the patsy.

Will Maybank share price "pushed" up? How the hell I know?

Posted by captainrpes > Dec 18, 2013 08:29 AM | Report Abuse
KC, refer to your post about maybank call warrant...interesting explaination...i used to accumulating CY n CZ in my treasure box..since September. CZ gave me handsome return in end july early august when it shoot up 10.30~10.50...sold it with after T4..then now i bought back after it drop back to 10.00..in early september.
just want to ask your opnion...how was the maybank chart? Bullish or bearlish? Prices keep stagent at range 9.9++~10.00....will it going to push up further?
Hopefully maybank can goes up to 10.30-10.50...

Captain, you got to consult a chartist on this. I ain't chartist. But if you look at the following link, Maybank target price by investment banks are quite high. At those prices, we will make a lot of money on the call warrants.

http://klse.i3investor.com/ptservlet.jsp?sa=pts&q=maybank

Posted by houseofordos > Dec 18, 2013 07:51 AM | Report Abuse
KC, actually does the discount part really matter if we dont intend to keep the warrant till maturity ? If we bullish on share price direction, buying highest gearing would make the most money fastest... and we can enter and exit fast with good profit... furthermore, I notice that as expiry date approaches, the discount will always widen due to the uncertainty or manipulation by issuing bank.... I always treat these call warrants as very short term investments... not one that I would hold for months simply due its volatility....

A premium of 10% means that the underlying share price must rise above 10% before you can make money on the warrants. Imagine if you have only 2 months left to expiry, what is the probability that the underlying share price can rise by 10%? If the premium is just say 1% and the warrant has 6 more months to expire, meaning that within this 6 months if the underlying share price just rises by 1%, you should make money. The chance is very high here.

Yes exactly, it is a game of probability. Engineers should be good at law of probability. The lower the premium, the higher the probability of making money. If the premium is high, the probability of making money is lower. The higher the gearing in this case does not make your chance to win higher, but just amplifies your losses if the underlying share price can't go high enough for you to make money. High gearing is only good if the underlying share price goes north.

The other very important factor in the theoretical value of warrant is volatility, how violent the movement of the underlying share price; the more volatile the better because there is more chance for you to make money.

In real punting of call warrants, the liquidity of the warrants is also very important.

No we don't have to hold the warrants to maturity. We normally sell before expiry. As far as the underlying share price is high enough to have positive settlement value, warrant price should track that closely.

Investment banks would not let the discount widen too much when settlement is approaching, because they would have to pay a lot when the underlying share price goes up further at settlement.

Yes, investment banks can and often manipulate the underlying share price when settlement approaches> But I think there is a limit they can do, especially if the underlying share is very liquid like Tenaga.